(When) Does Money Growth Help to Predict Euro-area Inflation at Low Frequencies?
Schreiber, Sven ;  ;  Universität <Berlin, Freie Universität> / Fachbereich Wirtschaftswissenschaft

Main title(When) Does Money Growth Help to Predict Euro-area Inflation at Low Frequencies?
AuthorSchreiber, Sven
EditorUniversität <Berlin, Freie Universität> / Fachbereich Wirtschaftswissenschaft
No. of Pages34 S.
Series ; 2013,10 : Economics
Keywordsmoney growth, Granger causality, quantity theory, unemployment
Classification (DDC)330 Economics
337 International economics
AbstractShort answer: It helps a lot when other important variables are excluded from the
information set. Longer answer: We revisit claims in the literature that money growth is Granger-causal for inflation at low frequencies. Applying frequency-specific tests in a comprehensive system setup for euro-area data we consider various theoretical predictors of inflation. A general-to-specific testing strategy reveals a recursive structure where only the unemployment rate and long-term interest rates are directly Granger-causal for low-frequency inflation movements, and all variables affect money growth. We therefore interpret opposite results from bivariate inflation/money growth systems as spurious due to omittedvariable biases. We also analyze the resulting four-dimensional system in a cointegration framework and find structural changes in the long-run adjustment behavior, which do not affect the main conclusions, however.
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FU DepartmentDepartment Business and Economics
Year of publication2013
Type of documentBook
Terms of use/Rights Nutzungsbedingungen
Created at2013-07-26 : 08:43:53
Last changed2016-01-05 : 02:38:31
Static URLhttp://edocs.fu-berlin.de/docs/receive/FUDOCS_document_000000018582